Today the Wall Street Journal is reporting that German industrial output for the 4th quarter of 2012 likely fell below the output for the 3rd quarter, making it possible that Germany could lapse into recession.
Industrial output in Europe’s largest economy grew slightly on the month in November but fell short of expectations, further weighing on fourth-quarter growth prospects, data from the country’s economics ministry showed Wednesday.
The 0.2% monthly rise in adjusted terms in November was below expectations of a 1.0% increase in a survey of economists published last week by Dow Jones Newswires. The October figures were revised to show the month wasn’t as severe for industrial firms as previously thought, with output having fallen by only 2.0% instead of the 2.6% drop initially reported.
The ministry said industrial output in the fourth quarter was “likely” below the level of the third quarter.
The industrial data follows other indicators of weakness in the German economy. Earlier in the week, data showed that exports dropped in November at their fastest pace in more than a year and manufacturing orders, which aren’t immediately reflected in output data, were down 1.8% on the month in November.
If you recall, Germany threw in a negative GDP growth print in Q4 2011. But, the Germans were able to beat back the recession calls, which most people make after two consecutive quarters of GDP contraction. In 2012 the Germans were moving in the opposite direction from the rest of the euro zone. I believe this move was only temporary and I have always said that the Germans would not be able to keep their economy from being dragged down by depression in the periphery.
Here’s the thing, though. The Germans believe in fiscal discipline. The austerity mantra they are helping to get going in the periphery is not just sadism. They will do the same to themselves. If the German economy continues to sputter, we will see Germany’s fiscal situation undershoot expectations and that will mean greater austerity in Germany. As you know, the Germans are concerned about their own public finances and the finance ministry is allegedly working on a set of austerity measures to go into effect AFTER the 2013 general election. If Germany throws in a negative GDP print in Q4 or in Q1 2013, we could see the timetable for German austerity moved up or at a minimum we could see austerity in Germany as an election issue. The ruling coalition wants to be able to say Germany is different than the periphery, that they have their finances in order. If the numbers start moving the other way, they will then be forced to make cuts to demonstrate their fiscal discipline. We should be watching for this.